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PICK N PAY STORES LIMITED - Sales update and trading statement for 52 weeks ended 25 February 2024 and update on recapitalisation

Release Date: 22/05/2024 07:30
Code(s): PIK     PDF:  
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Sales update and trading statement for 52 weeks ended 25 February 2024 and update on

Pick n Pay Stores Limited
Incorporated in the Republic of South Africa
Registration number: 1968/008034/06
JSE and A2X share code: PIK
ISIN: ZAE000005443
("Pick n Pay" or "the Company")

Sales update and trading statement for the 52 weeks ended 25 February 2024, update on
recapitalisation, balance sheet position and notice of financial assistance


Sales update

The Company and its subsidiaries ("the Group") increased total sales by 5.4% for the 52 weeks ended
25 February 2024 ("FY24" or "the Period"), with like-for-like sales growth of 2.9%.

                                                   Previously published
                                                       47 weeks ended             52 weeks ended
                                                       21 January 2024           25 February 2024
                                                              % growth                  % growth
    South Africa
      Pick n Pay                                                  -0.1%                      -0.2%
      Boxer                                                       17.1%                      17.5%
      Total                                                        5.2%                       5.2%
    Rest of Africa                                                10.3%                      10.1%
    Group sales                                                    5.3%                       5.4%
    Group sales (like-for-like)                                    2.9%                       2.9%

Pick n Pay South Africa sales growth for the Period was -0.2% (+0.2% like-for-like), while Boxer South
Africa sales growth was 17.5% (8.1% like-for-like), delivering total South African sales growth for the
Period of 5.2% (2.6% like-for-like). Internal selling price inflation for the Period was 7.3%, decreasing
from 8.3% in the first half of the Period (H1) to 6.4% in the second half (H2).

Pick n Pay Clothing sales growth from standalone stores for the Period was 17.0% (7.7% like-for like),
while Pick n Pay Online delivered sales growth of 74.4%, driven by ongoing improvements in the
Group's asap! platform and its Mr D partnership.

The Rest of Africa division increased sales for the Period by 10.1% and 12.5% on a constant currency

Asset impairment in Pick n Pay Supermarkets

FY24 Group earnings have been impacted by a R2.8 billion non-cash asset impairment of Pick n Pay
Supermarkets stores. The impairment, which covers right-of-use and physical store assets, has two

•     R1.8 billion impairment of assets of selected loss-making company-owned Pick n Pay stores,
      which will be closed or converted to Pick n Pay franchises or Boxer stores under the Group's
      strategic plan. These closures and conversions will enhance the store estate and reduce the
      impact of loss-making company-owned Pick n Pay stores on ongoing Group profitability;
•     R1.0 billion impairment of the assets of underperforming company-owned stores that will
      remain open. This reflects the revaluation of the assets of stores where the current profitability
      is below the value of assets, but where the Group has chosen to retain the stores and drive
      improved performance over time.

The strategic plan is heavily focused on improving the performance and profitability of the company-
owned Pick n Pay supermarkets that will not be closed or converted to other formats via improved

Further trading statement

Shareholders are referred to the announcement released on the Stock Exchange News Service of the
JSE Limited ("SENS") on 22 February 2024. In that announcement, the Group advised that it
expected to report a loss at the earnings and headline earnings levels for FY24, and that the
anticipated loss was entirely attributable to the performance of the Pick n Pay Supermarkets
business. The Group's Boxer and Pick n Pay Clothing businesses remain highly profitable.

The Group is finalising its financial results for FY24 and expects its FY24 earnings to fall within the
following ranges:

                                                                  52 weeks to                  52 weeks to
                                                             25 February 2024             26 February 2023
                                                               expected range                     reported
                                                               cents per share              cents per share
    Reported earnings metrics
      (Loss) / earnings per share (EPS)                     -686.01 to -637.33                        243.37
      Diluted EPS                                           -684.23 to -635.73                        242.54
      Headline (loss) / earnings per share (HEPS)           -228.99 to -177.14                        259.25
      Diluted HEPS                                          -228.38 to -176.70                        258.36
    Comparable earnings metrics
      Comparable HEPS                                       -281.13 to -228.31                        264.12
      Diluted comparable HEPS                               -280.39 to -227.75                        263.21

Note: Comparable HEPS strips out non-cash hyperinflation gains and losses related to the Group's interest in
TM Supermarkets in Zimbabwe. The Group's view is that Comparable HEPS provides the clearest view of
underlying profit performance on a year-on-year basis.
The FY24 results have been negatively impacted by gross profit margin contraction and trading
expense growth exceeding sales growth in Pick n Pay Supermarkets, as well as by the impairments
set out above.

Additional contributing factors to the expected FY24 Group loss are:

•     Once-off costs of R423 million, including R116 million duplication of supply chain costs during
      the Longmeadow / Eastport handover, and R307 million employee restructuring costs;
•     Additional trade receivables provisioning of R0.4 billion, reflecting the difficult trading
      environment in South Africa, and including a R0.2 billion provision increase in Botswana;
•     Incremental net debt service costs of R467 million from increased gearing and higher interest
•     Total diesel costs to run generators of R698 million (R652 million for FY23).

The Group has added back the R2.8 billion store asset impairment (R2.2 billion net of tax), alongside
all other impairments, for purposes of the calculation of HEPS.

Recapitalisation plan and balance sheet update

Shareholders are referred to the Company's cautionary announcements released on SENS on
22 February 2024 and renewed on 27 March 2024 and 13 May 2024, wherein the Group advised
shareholders that the board of directors ("the Board") had approved a two-step recapitalisation plan
("the Recapitalisation Plan"). Shareholders are reminded that the Recapitalisation Plan comprises a
proposed renounceable rights offer to existing shareholders of the Company of up to R4.0 billion,
expected to take place in mid-2024 ("Rights Offer"), followed by a proposed share offering and
subsequent listing of the Group's Boxer business on the Main Board of the Johannesburg Stock
Exchange ("IPO") expected to take place towards the end of 2024.

The Group is progressing well towards implementation of the Recapitalisation Plan. The terms and
conditions of the Recapitalisation Plan are being refined in consultation with the Board and its
advisors, and the final Plan remains subject to approval by the Board, shareholders and regulators.
The shareholder approvals required in order to launch and implement the Rights Offer will be sought
at an extraordinary general meeting of shareholders to be held near the end of June 2024 ("EGM"). A
circular detailing the relevant shareholder approvals required, incorporating a Notice of EGM, is
expected to be distributed to shareholders around the time of the FY24 results announcement.

Group net debt at 25 February 2024 totalled R6.1 billion, reflecting an improvement against the R6.7
billion guidance contained in the Company's previous update. The improved year-end net debt
position was the result of the Group clearing much of the excess stock referred to in the previous
trading update.

Pick n Pay has concluded a debt restructuring agreement with its short-term and long-term lenders
on 7 May 2024 which secures the Group's liquidity and funding up to 1 September 2025. In terms of
this restructuring agreement, the Rights Offer and IPO proceeds will be used to repay all Group debt,
except to the extent that lenders elect to provide ongoing working capital facilities beyond the IPO.
All of the Group's debt is currently guaranteed by Boxer and is secured by the Group's shareholding
in Boxer. The guarantee and security will be released at the time of the IPO, in order to facilitate the
IPO process.

Strategic plan and outlook

Group CEO, Sean Summers' new strategic plan has been approved by the Board, the relevant details
of which will be shared with investors as part of the FY24 results presentation. The plan is primarily
focused on turning around the Pick n Pay Supermarkets business, while reinforcing the Group's
strategic initiatives in the high growth Boxer, Pick n Pay Clothing and Online businesses, and
unlocking value for shareholders. The Group will provide segmental profit disclosure for Pick n Pay
and Boxer in the FY24 results announcement, highlighting the strong performance of Boxer.

The Group expects to improve its financial performance over the next two years. The improvement
is expected to be derived from (a) execution of the strategic plan in Pick n Pay Supermarkets; (b)
continued strong profit growth from Boxer and Pick n Pay Clothing; and (c) significantly reduced
interest charges from the debt reduction post implementation of the Recapitalisation Plan.

FY24 results announcement and strategy presentation

The Group expects to release its FY24 results on SENS just after 7:00am on Monday, 27 May 2024.
An in-person and online presentation will follow at 8:30am. Stakeholders are invited to register for
the results presentation webcast via the following link: The slides
accompanying the result presentation will be made available on the Pick n Pay Investor Relations
website at shortly before the commencement of the presentation. A
playback of the webcast will be made available on our website approximately 2 hours after the

Notice of financial assistance

Notice is hereby given that, in terms of the provisions of section 45(5)(a) of the Companies Act 71 of
2008 (as amended) ("the Companies Act") and pursuant to the special resolution passed at the
previous annual general meeting of the Company held on 19 July 2023, authorising the Board to
provide direct and indirect financial assistance to related or inter-related companies, the Board has
adopted resolutions authorising the Company to provide financial assistance pursuant to the debt
restructuring agreement and supporting finance documents which amended the terms and conditions
of the Group's existing short-term and long-term loan agreements with the Group's funders.

Prior to authorising the aforementioned financial assistance, the Board considered and satisfied itself,
in terms of section 45 of the Companies Act, that (i) immediately after providing the financial
assistance, the Company would satisfy the solvency and liquidity test as contemplated in section 4 of
the Companies Act, (ii) there has been due compliance with the Company's memorandum of
incorporation, and (iii) the terms of the financial assistance are fair and reasonable to the Company.

The information contained in this announcement is presented in accordance with the JSE Listings
Requirements and is the responsibility of the Board. Any forecast or estimate financial information
contained herein has not been reviewed by or reported on by the Group's external auditors.

By order of the Board
Cape Town
22 May 2024

Sponsor: Investec Bank Limited

Pro forma information
The pro forma constant currency information is presented in accordance with the JSE Listings
Requirements and is presented for illustrative purposes only. The pro forma financial information may
not fairly present the Group's financial position, changes in equity, results of operations or cash flows.

Forward-looking information contained in this announcement
This announcement contains certain forward-looking statements which relate to the Group's possible
future actions, long-term strategy, performance, liquidity position and financial position. All forward-
looking statements are solely based on the views and considerations of the Board, and in particular, as
at the date hereof. These statements involve risk and uncertainty as they relate to events and depend
on circumstance that may or may not occur in the future. The Group does not undertake to update or
revise any of these forward-looking statements publicly, whether to reflect new information, future
events or otherwise. These forward-looking statements have not been reviewed or reported on by the
Group's external auditors.

Important information
This announcement is not for release, publication or distribution, directly or indirectly, in or into
Australia, Canada or Japan or any other jurisdiction in which the distribution or release would be
unlawful. This announcement does not constitute or form a part of any offer or solicitation to purchase
or subscribe for securities in any jurisdiction, including the United States, Australia, Canada or Japan
or in any other jurisdiction in which such offer, solicitation or sale would be unlawful. The securities
mentioned herein ("the Securities") have not been, and will not be, registered under the United States
Securities Act of 1933 ("the Securities Act").

The Securities may not be offered or sold in the United States except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the Securities Act. There will be no
public offer of securities in the United States, Canada, Australia and Japan.

The issue or sale of Securities in the offerings mentioned herein are subject to specific legal or
regulatory restrictions in certain jurisdictions. The Company assumes no responsibility in the event
there is a violation by any person of such restrictions.

In the United Kingdom, this communication is being distributed to and is only directed at persons who
are "qualified investors" within the meaning of Article 2(e) of Regulation EU 2017/1129 as it forms part
of retained EU law by virtue of the European Union (Withdrawal) Act 2018 who are also; (i) investment
professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (the "Order"); (ii) high net worth entities falling within Article 49(2)(a) to (d) of
the Order; and (iii) other persons to whom it may be lawfully communicated (all such persons in (i), (ii)
and (iii) above, together being referred to as "relevant persons"). In the United Kingdom, any invitation,
offer or agreement to subscribe for, purchase or otherwise acquire securities will be engaged in only
with relevant persons. Any person in the United Kingdom who is not a relevant person should not act
or rely on this communication or any of its contents.

In any member state of the European Economic Area, this communication is only addressed to and is
only directed at qualified investors in such member state within the meaning of the Prospectus
Regulation EU 2017/1129, and no person that is not a qualified investor may act or rely on this
communication or any of its contents.

This announcement does not constitute, or form a part of, any offer or solicitation or advertisement
to purchase and/or subscribe for shares in South Africa, including an offer to the public for the sale of,
or subscription for, or the solicitation of an offer to buy and/or subscribe for, shares as defined in the
South African Companies Act, No. 71 of 2008 (as amended) or otherwise (the "Act") and will not be
distributed to any person in South Africa in any manner that could be construed as an offer to the
public in terms of the Act. Accordingly, this announcement does not constitute a "registered
prospectus" or an "advertisement" relating to an "offer to the public", as contemplated by the Act. No
prospectus has been, or will be, filed with the South African Companies and Intellectual Property
Commission in respect of this information.

The information contained herein is only preliminary and indicative and does not purport to contain
any information that would be required to evaluate the Group, its respective financial position and/or
any investment decision. This announcement is not intended to provide, and should not be relied upon
for accounting, legal or tax advice nor does it constitute a recommendation regarding any potential
securities offering. In particular, this announcement should not be considered as "advice" as defined
in the South African Financial Advisory and Intermediary Services Act, 37 of 2002 and should not be
construed as an express or implied recommendation, guide or proposal that any transaction, or in
relation to the business or future investments of the Group, is appropriate to the particular investment
objectives, financial situations or needs of any person.

Date: 22-05-2024 07:30:00
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The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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